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United States Government Accountability Office GAO Report to Congressional Committees September 2006 EMPOWERMENT ZONE AND ENTERPRISE COMMUNITY PROGRAM Improvements Occurred in Communities, but the Effect of the Program Is Unclear a GAO-06-727 September 2006 EMPOWERMENT ZONE AND Accountability Integrity Reliability Highlights ENTERPRISE COMMUNITY PROGRAM Highlights of GAO-06-727, a report to Improvements Occurred in Communities, but congressional committees the Effect of the Program Is Unclear Why GAO Did This Study What GAO Found The EZ/EC program is one of the Round I Empowerment Zones (EZ) and Enterprise Communities (EC) most recent large-scale federal implemented a variety of activities using $1 billion in federal grant funding effort intended to revitalize from the Department of Health and Human Services (HHS), and as of March impoverished urban and rural 2006, the designated communities had expended all but 15 percent of this communities. There have been funding. Most of the activities that the grant recipients put in place were three rounds of EZs and two rounds of ECs, all of which are community development projects, such as projects supporting education and scheduled to end no later than housing. Other activities included economic opportunity initiatives such as December 2009. job training and loan programs. Although all EZs and ECs also reported using the program grants to leverage funds from other sources, reliable data The Community Renewal Tax on the extent of leveraging were not available. Relief Act of 2000 mandated that GAO audit and report in 2004, 2007, According to federal standards, agencies should oversee the use of public and 2010 on the EZ/EC program resources and ensure that ongoing monitoring occurs. However, none of the and its effect on poverty, federal agencies that were responsible for program oversight—including unemployment, and economic HHS and the departments of Housing and Urban Development (HUD) and growth. This report, which focuses Agriculture (USDA)—collected data on the amount of program grant funds on the first round of the program starting in 1994, discusses program used to implement specific program activities. This lack of data limited both implementation; program federal oversight and GAO’s ability to assess the effect of the program. oversight; data available on the use Moreover, because HHS did not provide the states and designated of program tax benefits; and the communities with clear guidance on how to monitor the program grant program’s effect on poverty, funds, the extent of monitoring varied across the sites. unemployment, and economic growth. In conducting this work, In addition, detailed Internal Revenue Service (IRS) data on the use of EZ/EC GAO made site visits to all Round I program tax benefits were not available. Previously, GAO cited similar EZs, conducted an e-mail survey of challenges in assessing the use of tax benefits in other federal programs and 60 Round I ECs, and used several stated that information on tax expenditures should be collected to ensure statistical methods to analyze that these expenditures are achieving their intended purpose. Although GAO program effects. recommended in 2004 that HUD, USDA, and IRS work together to identify What GAO Recommends the data needed to assess the EZ/EC tax benefits and the cost effectiveness of collecting the information, the three agencies did not reach agreement on While not making an approach. recommendations, GAO makes observations that should be Without adequate data on the use of program grant funds or tax benefits, considered if these or similar neither the responsible federal agencies nor GAO could determine whether programs are authorized in the the EZ/EC funds had been spent effectively or that the tax benefits had in future. HHS, HUD, and USDA fact been used as intended. Using the data that were available, GAO provided comments. In particular, attempted to analyze changes in several indicators—poverty and HUD disagreed with the observation that there was a lack of unemployment rates and two measures of economic growth. Although data to perform program oversight. improvements in poverty, unemployment, and economic growth had occurred in the EZs and ECs, our econometric analysis of the eight urban www.gao.gov/cgi-bin/getrpt?GAO-06-727. EZs could not tie these changes definitively to the EZ designation. To view the full product, including the scope and methodology, click on the link above. To view the survey results, click on the following link: www.gao.gov/cgi-bin/getrpt?GAO-06- 734SP. For more information, contact William B. Shear at (202) 512-8678 or [email protected]. United States Government Accountability Office Contents Letter 1 Results in Brief 3 Background 6 Round I EZs and ECs Have Used Their Grant Funds to Implement a Wide Range of Program Activities 11 Oversight Was Hindered by Limited Program Data and Variation in Monitoring 21 Lack of Detailed Tax Data Made It Difficult to Assess the Use of Program Tax Benefits 25 In Aggregate, EZs and ECs Showed Some Improvements, but Our Analysis Did Not Definitively Link These Changes to the Program 29 Observations 48 Agency Comments and Our Evaluation 49 Appendixes Appendix I: Objectives, Scope, and Methodology 54 Methodology for Site Visits 55 Methodology for Survey of EC Officials 57 Methodology for Qualitative Analysis of Site Visit and EC Survey Data 59 Methodology for Review of Program Oversight 60 Methodology for Survey of EZ Businesses 61 Methodology for Assessing the Effect of the Program on Poverty, Unemployment, and Economic Growth 63 Appendix II: Methodology for and Results of Our Econometric Models 70 Description of Our Models 71 Results of Our Models for Poverty 72 Results of Our Models for Unemployment 74 Results of Our Models for Economic Growth 76 Other Variables Tested for Use in Our Econometric Models 80 Appendix III: List of Communities Designated in Round I of the EZ/EC Program 82 Appendix IV: Description of the Empowerment Zones and Enterprise Communities We Visited 85 Atlanta Empowerment Zone 85 Baltimore Empowerment Zone 90 Chicago Empowerment Zone 95 Detroit Empowerment Zone 100 Page i GAO-06-727 Empowerment Zones and Enterprise Communities Contents New York Empowerment Zone 105 Philadelphia-Camden Empowerment Zone 116 Cleveland Empowerment Zone 127 Los Angeles Empowerment Zone 132 Kentucky Highlands Empowerment Zone 137 Mid-Delta Mississippi Empowerment Zone 142 Rio Grande Valley, Texas Empowerment Zone 147 Providence, Rhode Island Enterprise Community 152 Fayette-Haywood, Tennessee Enterprise Community 157 Appendix V: Comments from the Department of Health and Human Services 162 Appendix VI: Comments from the Department of Housing and Urban Development 165 Appendix VII: Comments from the U.S. Department of Agriculture 180 Appendix VIII: GAO Contact and Staff Acknowledgments 183 Tables Table 1: Round I EZ/EC Program Criteria and Benefits 8 Table 2: National Poverty, Unemployment, Economic Growth Data for 1990 to 2004 11 Table 3: Total EZ/EC Grant Funding Remaining as of March 31, 2006 12 Table 4: Number of Stakeholders Interviewed for EZ and EC Site Visits, by Type 57 Table 5: Coding of Data Reliability of HUD and USDA Performance Systems 61 Table 6: Confidence Intervals for Average Household Income and Average Housing Value in Constant 2004 Dollars 64 Table 7: Factors Selected for Choosing Comparison Tracts 67 Table 8: Estimates of the Association between the EZ Program and the Change in Poverty Rate, 1990-2000 73 Table 9: Estimates of the Association between the EZ Program and the Change in Unemployment Rate, 1990-2000 75 Table 10: Estimates of the Association between the EZ Program and Economic Growth, Measured by the Change in the Number of Businesses, from 1995-1999 77 Table 11: Estimates of the Association between the EZ Program and Economic Growth, Measured by the Change in the Number of Jobs, 1995-1999 79 Table 12: Alternative Variables Considered in Our Analyses 80 Page ii GAO-06-727 Empowerment Zones and Enterprise Communities Contents Table 13: Changes in Selected Census Variables Observed in the Atlanta EZ and Its Comparison Area 88 Table 14: Changes in Selected Economic Growth Variables Observed in the Atlanta EZ and Its Comparison Area 89 Table 15: Changes in Selected Census Variables Observed in the Baltimore EZ and Its Comparison Area 93 Table 16: Changes in Selected Economic Growth Variables Observed in the Baltimore EZ and Its Comparison Area 94 Table 17: Changes in Selected Census Variables Observed in the Chicago EZ and Its Comparison Area 98 Table 18: Changes in Selected Economic Growth Variables Observed in the Chicago EZ and Its Comparison Area 99 Table 19: Changes in Selected Census Variables Observed in the Detroit EZ and Its Comparison Area 103 Table 20: Changes in Selected Economic Growth Variables Observed in the Detroit EZ and Its Comparison Area 104 Table 21: Changes in Selected Census Variables Observed in the New York EZ, the Bronx and Upper Manhattan (UM) Portions, and the EZ Comparison Area (Comp.) 112 Table 22: Changes in Selected Economic Growth Variables Observed in the New York EZ, the Bronx and Upper Manhattan (UM) Portions, and the EZ Comparison Area (Comp.) 114 Table 23: Changes in Selected Census Variables Observed in the Philadelphia-Camden EZ, the Camden (Cam.) and Philadelphia (Phila.) Portions, and the EZ Comparison Area (Comp.) 123 Table 24: Changes in Selected Economic Growth Variables Observed in the Philadelphia-Camden EZ, the Camden (Cam.) and Philadelphia (Phila.) Portions, and
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